Report on Review by Independent Certified Public Accountants

Board of Directors
Hastings Manufacturing Company
Hastings, Michigan

We have reviewed the accompanying condensed consolidated balance sheets of Hastings Manufacturing Company (the "Company") and subsidiaries as of September 30, 2000, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2000 and 1999, and cash flows for the nine-month periods ended September 30, 2000 and 1999, included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended September 30, 2000. These condensed consolidated financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

As described in Note 4, on January 24, 2000, a class action lawsuit was filed against the Company by its retirees with respect to the early 1997 amendment of the Company's postretirement benefit plans. The outcome of the lawsuit is uncertain at this time.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein). In our report dated February 29, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/BDO Seidman, LLP

BDO Seidman, LLP
Grand Rapids, Michigan
October 19, 2000

PART I - FINANCIAL INFORMATION

Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Balance Sheets

Hastings Manufacturing Company and Subsidiaries

Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Statements of Income

Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Hastings Manufacturing Company and Subsidiaries

Hastings Manufacturing Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Hastings Manufacturing Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Hastings Manufacturing Company and Subsidiaries

Review by Independent Certified Public Accountants

The September 30, 2000 and 1999 condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been reviewed by BDO Seidman, LLP, Independent Certified Public Accountants, in accordance with established professional standards and procedures for such a review.

2000 Compared to 1999

Net sales in the third quarter of 2000 decreased $978,797, or 10.9%, from $8,977,347 in the third quarter of 1999 to $7,998,550. Net sales for the first nine months of 2000 decreased $1,162,908, or 4.2%, from $27,674,644 in the first nine months of 1999 to $26,511,736. The overall net sales decrease widened in the third quarter of 2000 reflecting year-to-date sales declines in the domestic aftermarket, private brand and original equipment markets and Canadian aftermarket, partially offset by a modest increase in the export market. The sales decreases in the domestic and Canadian aftermarket reflect an industry-wide softness in the replacement parts industry. The Company is currently evaluating the depth of this softness in the replacement parts market and is developing operating options to help offset that softness. The decreases in the private brand and original equipment markets are primarily due to the loss of certain customers through market consolidations. The improvement in the export market reflects a continued sales recovery by one of the Company's primary export customers.

1999 Compared to 1998

Net sales in the third quarter of 1999 decreased $278,459, or 3.0% from the third quarter of 1998. For the first nine months of 1999, net sales decreased $2,155,350, or 7.2%, from the first nine months of 1998. The decrease in the Company's net sales for the first nine months of 1999 primarily reflected a decline in the Company's export volume, as first half sales declines in the domestic aftermarket and private brand and original equipment markets narrowed during the third quarter of 1999. The export volume was negatively affected by specific political and economic factors in the foreign countries where the Company conducts business, combined with the effects of realigning the distribution channel within one of the Company's major foreign markets.

COST OF SALES AND GROSS PROFIT

2000 Compared to 1999

Cost of sales in the third quarter of 2000 decreased $992,322, or 15.0%, from the third quarter of 1999. For the first nine months of 2000, cost of sales decreased $1,690,752, or 8.4%, from the first nine months of 1999. The gross profit margin on net sales increased for the third quarter of 2000, from 26.4% for the third quarter of 1999, to 29.8%. For the first nine months of 2000, the gross profit margin on net sales also increased, from 27.5% in the first nine months of 1999, to 30.7%. The gross profit margin on net sales for the third quarter of 2000 narrowed slightly from the six-month level of 30.8%, due to a change in the Company's sales mix. As noted earlier, sales in the domestic aftermarket were down through the first three quarters of 2000 due to an overall softness in the replacement parts market. Sales in the domestic piston ring aftermarket have traditionally carried a higher gross profit margin in order to support the higher level of operating expenses that are necessary to support that volume. In addition, the Company has experienced an increase in export sales volume. The export piston ring sales volume has traditionally carried a lower gross profit margin than domestic sales as a result of the lower pricing offered due to the lower level of operating expenses (not included in cost of sales) that are required to service that volume. Finally, the

negative effects of these items on the gross profit margin were slightly offset by lower raw materials costs, which were the result of favorable pricing received from suppliers based on the volume of raw materials purchased during the quarter. The overall decrease in cost of sales and the improved gross profit margin on net sales for the first nine months of 2000 are primarily the result of non-recurring costs that negatively affected the 1999 figures. Those 1999 costs were associated with the conversion and start-up of various production processes. As a result of that conversion, productivity levels were not at their anticipated needs. In order to cover the production deficiencies, and thus improve production levels, the Company incurred additional labor and overhead costs throughout 1999. The Company believes that those issues have been substantially addressed and, as a result, the gross profit margin achieved in the first nine months of 2000 has returned to more historic levels.

1999 Compared to 1998

Cost of sales in the third quarter of 1999 increased $102,176, or 1.6%, from the third quarter of 1998. For the first nine months of 1999, cost of sales decreased $464,542, or 2.3%, from the first nine months of 1998. The gross profit margin on net sales declined for the third quarter of 1999, from 29.7% for the third quarter of 1998, to 26.4%. For the first nine months of 1999, the gross profit margin on net sales also declined, from 31.1% in the first nine months of 1998, to 27.5%. Given the net sales decline noted above, a larger cost of sales decline, with a higher relative gross profit margin, would have been anticipated. However, the 1999 cost of sales and gross profit margin on sales were negatively affected by the non-recurring costs and the additional labor and overhead costs discussed above. Had these costs not occurred, the gross profit margin for the third quarter of 1999 would have approached the 29.7% from the same period in 1998.

OPERATING EXPENSES

2000 Compared to 1999

Total operating expenses for the third quarter of 2000 increased $74,388, or 3.5%, from the third quarter of 1999. For the first nine months of 2000, total operating expenses increased $193,096, or 2.9%, from the first nine months of 1999. Advertising costs for the third quarter of 2000 increased $48,889, or 109.3%, from the third quarter of 1999. For the first nine months of 2000, advertising costs increased $21,135, or 10.6%, from the first nine months of 1999. These increases reflect an influx of co-op advertising costs in the third quarter of 2000, combined with the costs related to a new piston ring catalog in 2000 that have been incurred throughout the year. Selling costs for the third quarter of 2000 increased $32,409, or 4.5%, from the third quarter of 1999. For the first nine months of 2000, selling costs increased $98,106, or 4.4%, from the first nine months of 1999. These increases reflect a slight decrease in volume-driven agents' commissions, offset by increases in various sales personnel and selling support costs. General and administrative costs for the third quarter of 2000 decreased $6,910, or 0.5%, from the third quarter of 1999. This decrease reflects the reversal of previously accrued performance-based personnel costs, offset substantially by increases in general personnel support costs and legal and professional fees. For the first nine months of 2000, general and administrative costs increased $73,855, or 1.8%, from the first nine months of 1999. This increase reflects slight year-to-date increases in the aforementioned general personnel support costs and legal and professional fees, combined with an increase in insurance costs. The increase in legal and professional fees is related to the Company's retirees class-action lawsuit described in Note 4 to the accompanying Condensed Consolidated Financial Statements. The increased insurance cost represents the deductible portion of an insured fire loss that took place in April 2000 within the finished goods storage area of the Company's production facility. The effect of this event on the Company's ability to service its customers, and its effect on earnings, has been minimal.

1999 Compared to 1998

Total operating expenses for the third quarter of 1999 decreased $66,105, or 3.0%, from the third quarter of 1998. For the first nine months of 1999, total operating expenses decreased $339,917, or 4.9%, from the first nine months of 1998. Advertising costs for the third quarter of 1999 decreased $5,508, or 11.0%, from the third quarter of 1998. For the first nine months of 1999, advertising costs decreased $40,955, or 17.0%, from the first nine months of 1998. These decreases reflected a reduction in advertising support costs in 1999, combined with the inclusion, in 1998, of a biannual customer service tips manual. Selling costs for the third quarter of 1999 decreased $4,932, or 0.7%, from the third quarter of 1998. Selling costs for the first nine months of 1999 decreased $80,177, or 3.5%, from the first nine months of 1998. These decreases reflected a decrease in volume-driven selling support costs, partially offset by a slight increase in salesmen's travel and sales promotion costs. General and administrative costs for the third quarter of 1999 decreased $55,665, or 3.9%, from the third quarter of 1998. For the first nine months of 1999, general and administrative costs decreased $218,785, or 5.0%, from the first nine months of 1998. These decreases reflected the inclusion in 1998 of approximately $50,000 of severance costs related to staffing reductions, combined with a reduction, in 1999, of certain personnel support costs.

OTHER EXPENSES

2000 Compared to 1999

Other expenses netted to $148,772 for the third quarter of 2000, compared to $148,401 for the third quarter of 1999. For the first nine months of 2000, these expenses netted to $456,543, versus a net expense of $407,708 for the first nine months of 1999. These increases primarily reflect a higher interest expense in 2000 related to increased utilization of the Company's short-term lines of credit. The other, net income for the third quarter and first nine months of 2000 reflects the income associated with the gain on the sale of excess production equipment, combined with the income derived from the Company's investment in a joint venture, in February 2000, related to the "Casite" brand additives products. Details of this joint venture were described in Note 1 to the Company's December 31, 1999 Consolidated Financial Statements. There was no income or expense generated by this joint venture in 1999. The other, net income for 1999 primarily reflects a gain on the sale of obsolete equipment.

1999 Compared to 1998

Other expenses netted to $148,401 for the third quarter of 1999, compared to a net expense of $92,958 for the third quarter of 1998. For the first nine months of 1999, these expenses netted to $407,708, compared to a net expense of $295,550 for the first nine months of 1998. These increases reflected a higher interest expense on the Company's long-term debt associated with the restructuring of its debt obligation in late August of 1998. As indicated above, the other, net expense for the first nine months of 1999 primarily reflected the gain on sale of obsolete equipment.

TAXES ON INCOME

The 2000 and 1999 effective tax rates of 40.4% and 40.8%, respectively, are higher than the domestic statutory federal tax rate of 34.0% due primarily to the impact of various state income taxes and the impact of a higher statutory rate applicable to the earnings of the Canadian subsidiary.

As of September 30, 2000, the Company recorded net deferred income tax assets of $6,738,442. The major components of those assets are the tax effects of the net operating loss carryforwards and net accrued

retirement and postretirement benefit obligations. The realization of these recorded benefits is dependent upon the generation of future taxable income. Management believes that it is more likely than not that adequate levels of future taxable income will be generated to absorb the net operating loss carryforwards, the deductible amounts related to the retirement and postretirement benefit obligations, and the remaining net deductible temporary differences. In addition, based upon projected foreign source income, management believes that is more likely than not that the foreign tax credits, net of a valuation allowance at September 30, 2000, will be utilized prior to their expiration.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash requirements continue to be for operating expenses such as labor costs, and for funding accounts receivable, capital expenditures and long-term debt service. Historically, the Company's primary sources of cash have been from operations and from bank borrowings. In late March 2000, the Company entered into an agreement with its primary lender to amend the terms of its short- and long-term debt obligations. The amendment increased the short-term line available to the Company from $3,000,000 to $3,500,000. The amendment also modified the payment schedule of the Company's long-term debt obligation, and provides the primary lender with a security position in certain assets of the Company. Details of this amendment are described in Note 12 to the Company's December 31, 1999 Consolidated Financial Statements. As a result of this amendment, and based on an anticipated improvement in profitability, the Company expects to generate sufficient future funds from operations and bank borrowings to fund its growth and operating needs. Total short-term lines available to the Company as of September 30, 2000 totaled $5,700,000, of which $1,200,000 was unused.

During the first nine months of 2000, the Company generated $507,890 of net cash from operating activities. The realized net income, depreciation and decreases in deferred income taxes and inventories were partially offset by increases in accounts receivable and other assets, and decreases in accounts payable and accruals and the postretirement benefit obligation. The decrease in deferred income taxes primarily reflects the utilization of a portion of the tax net operating loss carryforward based on earnings for the first nine months of the year. The decrease in inventories reflects a slight reduction in inventory requirements in relation to customer demand. The increase in accounts receivable reflects the timing of customer sales and the related payment terms associated with those sales. The increase in other assets reflects the additional funding of one of the Company's defined benefit pension plans, in order to fund the plan to specified limits. The decrease in accounts payable and accruals is due to several large payments being made in the first nine months of 2000 related to workers' compensation and general accounts payable, offset slightly by an increase in the compensation accrual, which reflects the timing of the payment of employee wages. The decrease in the postretirement benefit obligation reflects the excess of actual postretirement benefit claims paid over the actuarially determined annual expense. The investing activities for the first nine months of 2000 primarily reflect the Company's increased support of its "lean manufacturing" environment. (Lean manufacturing refers to a discipline of arranging the workflow in such a manner as to minimize or eliminate any waste of materials or labor.) The Company is continually reviewing and identifying the needs of its lean manufacturing environment and the investing activities for the first nine months of 2000 reflect the Company's support of these needs. The investing activities also reflect the Company's investment in a joint venture, in February 2000, related to the "Casite" brand additives products. This joint venture was described in Note 1 to the Company's December 31, 1999 Consolidated Financial Statements. The financing activities for the first nine months of 2000 reflect the working capital requirements that were primarily needed to fund the operating activity items noted above. The financing activities also reflect the amortization of the Company's long-term debt obligation that was amended effective March 30, 2000. Details of this amendment were described in Note 12 to the Company's December 31, 1999 Consolidated Financial Statements. The financing activities also reflect

the purchase and retirement of 30,000 shares of the Company's common stock. This stock repurchase was part of the common stock repurchase program that the Company announced in February 2000. This program was described in Note 8 to the Company's December 31, 1999 Consolidated Financial Statements.

During the first nine months of 1999, the Company generated $308,247 of net cash from operating activities. The realized net income and depreciation, combined with decreases in accounts receivable, other assets and deferred income taxes, were partially offset by an increase in inventories and decreases in accounts payable and accruals and the postretirement benefit obligation. The decrease in accounts receivable reflected the timing of customer sales and related payment terms associated with those sales. The decrease in other assets was due to the reduction of the prepaid pension asset through the recognition of the expected pension expense for 1999. The decrease in the net deferred income tax asset was the result of the partial utilization of the tax net operating loss carryforward based on earnings for the first nine months of the year. The increase in inventories reflected the Company's efforts toward having sufficient quantities of products on hand in order to maintain adequate order fill for its customers. The decrease in accounts payable and accruals reflected the payment of several large accruals in the first nine months of 1999 related to compensation, workers' compensation insurance and general accounts payable. The investing activities for the first nine months of 1999 reflected a decreased requirement for new capital equipment, as the Company began to finalize its transition into a lean manufacturing environment. The investing activities also reflected the proceeds from the sale of obsolete plant equipment. The financing activities for the first nine months of 1999 reflected the working capital requirements that were primarily needed to fund the operating activity items noted above. The financing activities also reflect the amortization of the Company's long-term debt obligation that resulted from a long-term debt agreement with the Company's primary lender in late August 1998. The details of this agreement have been disclosed in prior reports.

As noted throughout the above discussion, the Company is committed to the implementation of lean manufacturing principles throughout the organization. Final implementation of these principles should reduce the Company's inventory levels, and thus enhance the Company's cash flow now and in the future. The Company is also currently evaluating plans to address the issue of a possible prolonged industry-wide downturn in the replacement parts market.

LITIGATION CONTINGENCY

As disclosed in Note 4 to the accompanying Condensed Consolidated Financial Statements, on January 24, 2000, the Company's retirees filed a class-action lawsuit against the Company as a result of the April 1997 amendment of the Company's postretirement benefit plans. The plans were amended principally to adjust the cost-sharing provisions. The suit alleges that the Company denied class retirees and their dependents certain health insurance benefits to which the retirees had a "vested" right pursuant to the terms of the Company's collective bargaining agreements (1964 to the present). The Company has denied any wrongdoing in this suit, and intends to defend it and any related class certification vigorously. However, due to the fact that this lawsuit is in its early stages, the Company's ultimate success in prevailing against the retirees' charges is uncertain at this time. If the retirees' position prevails, it is anticipated that a requirement to provide postretirement benefits at the pre-amendment level would have a material adverse effect on the future financial position, results of operations and cash flows of the Company. The case is scheduled for trial in June 2001.

NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" issued in June 1998, requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (1) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (2) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133, as amended by SFAS's No. 137 and 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

Historically, the Company has not entered into derivatives contracts for speculative purposes. The Company does periodically enter into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate borrowings. However, the fair value of such derivatives are not significant. Accordingly, the Company does not expect adoption of the new standard on January 1, 2001 to materially affect its Consolidated Financial Statements.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues. SAB No. 101 is effective for the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company believes that its current revenue recognition policies comply with the provisions of SAB No. 101.

FORWARD-LOOKING STATEMENTS

With the exception of historical matters, the matters discussed in this commentary include forward-looking statements that describe the Company's plans, objectives, goals, expectations or projections. These forward-looking statements are identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "projects," "plans" or "believes" that a particular event "may occur" or "will likely occur" in the future, or similar statements. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this commentary, there are many important factors that could cause actual results to be materially different from the Company's current expectations.

Anticipated future sales are subject to competitive pressures from many sources. As an example, future sales could be affected by consolidation within the automotive replacement parts industry, whereby the Company could lose sales due to a competitor purchasing all of the assets of a current customer of the Company. Future sales could also be affected by current and future political and economic factors in the foreign markets where the Company conducts business.

Cost of sales and operating expenses may be adversely affected by unexpected costs associated with various issues. For example, future cost of sales could be affected by unexpected expenses related to the final transition into, and future maintenance of, a lean manufacturing environment. Future operating expenses could be adversely affected, for example, by such items as unexpected large claims within the Company's self-funded group health insurance plan, increased retiree health insurance claim exposure as a result of an adverse court ruling on the current retiree health issue, or bad debt expenses related to deterioration in the creditworthiness of a customer.

The foregoing is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The foregoing is not an exhaustive list of all economic, competitive, governmental and technological factors that could adversely affect the Company's expected consolidated financial position, results of operations or liquidity. The Company disclaims any obligation to update its forward-looking statements to reflect subsequent events or circumstances.

The Company is exposed to potential market risks on interest rates relating to an interest swap agreement transacted with its primary lender in connection with its long-term debt agreement. Management believes that the fluctuation in interest rates in the near future will not have a material impact on the consolidated financial statements taken as a whole. The Company does not use derivative financial instruments for trading purposes.